by Anne B. Wenzel, CPA, Tiensvold Shaffer Wenzels CPA’s PLLC
Death and taxes, that’s what we say, right? The two things that are for certain.
For those of you who lost loved ones this year, I hope they moved on to a better, more comfortable place and you can find peace in your memories of them. Keep in mind, required minimum distributions (RMDs) for those over 70 ½ are generally required to be taken in the year of death even if they were not taken prior to the death. As for taxes, 2018 tax returns are going to be fun. Lots of changes, some good and some bad – here are a few tidbits in hopefully simple language:
Tax rates changed mostly as a decrease to prior years and the standard deduction just about doubled. Personal exemptions are a thing of the past, except for the $500 deduction for certain dependents. For those of you with young(er) children and the right tax bracket, the child-tax credit doubled to $2,000. But if you moved for work this year, your moving expenses are not deductible, with a few specific exceptions (military), and personal casualty losses for the most part are no longer allowed. Exceptions to these include business-related events.
Itemized deductions are still allowed, assuming the total gets over the new higher thresholds for your filing status. State and local taxes are capped at $10,000 and mortgage-interest deduction is limited to the interest paid on a maximum mortgage of $750,000 (for new mortgages) and some other specific restrictions.
The big change that hurts is the loss of deductions in the miscellaneous (2 percent of AGI) category. Now I’m talking that tax speak that will put you to sleep, but hang in there – I’ll explain. For those of you who are employed (W-2 wages) and pay for work expenses not reimbursed by your employer, those are no longer deductible – time to have a chat with your employer. And those of you with great tax preparers and investment advisors, those fees will no longer be deductible – with some exceptions of course.
We live in such a charitable volunteer town with great committed citizens – yes, still give of your time and money, it will be deductible with some exceptions, and our nonprofits and charitable organizations rely on those commitments. The catch-22 this year, in a much abbreviated summary, the Arizona tax credits that reduce Arizona income tax liability dollar for dollar will still work for Arizona, they just cannot also be deducted for IRS charitable deduction purposes.
Now for the scoop on those dreaded medical expenses – do I really have to keep adding up all those receipts? Well, yes, in my opinion. Arizona (as of the writing of this article) still allows the deduction for qualified medical expenses whether or not you itemized on your IRS tax return. And remember, those loved ones in advanced-care facilities or those with at-home assistance may be able to deduct the cost of that care as a medical expense.
Now for the disclosures – please consult with your tax and investment advisors, your legal and estate planning professionals – there are exceptions and restrictions to all the new changes and some pitfalls to avoid. This is a small sampling of all the new rules. And, while your neighbor wrote off his entire life, you probably cannot. So, listen to your professional and don’t try to keep up with the neighbors (they don’t have the same tax or investment situation that you do).
Good luck with your 2018 tax filing – it’s right around the corner.